DEALMAKER GUEST BLOG -- REBECCA LYNN WHITE

Finding your match: Which buyer is right for your business?

Rebecca Lynn White is a director in Western Reserve Partners' Industrial Group. She focuses on mergers and acquisitions, capital raising and bankruptcy and restructuring transactions.

Valentine's Day brings with it the hopes of many that Cupid will help them find their perfect match. Just as most people have carefully and endlessly considered the ideal characteristics of their soul mate, business owners should be equally meticulous in their evaluation of potential buyers and investor groups. Careful consideration should be given to the various types of buyers and which ones would make the best fit for both the business owner and the company.

When contemplating a liquidity event, business owners should ask themselves a few basic questions to determine which type of buyer best fits their situation. Do I want to remain active with the business in the future, or do I want to retire on a sailboat traveling the world? How much liquidity do I need right now? What is the next step for my business, what will it take to get there and am I prepared to shoulder this risk? What will happen to my employees and company brand? What kind of legacy do I want to leave behind in regards to my business?

For business owners seeking to retire and achieve maximum liquidity, a strategic buyer may be the love match. Strategic buyers typically do not require the business owner's leadership post-transaction. They typically have ample resources available and often can afford to pay a higher price, especially in synergistic situations. Though the seller may no longer have control or influence over the business they once owned, they now will have the time and money to spend their days sailing the world.

For those business owners who wish to remain active in the company, selling a portion of the business to a private equity group could be ideal. Private equity groups typically prefer to invest in companies with solid management teams and often encourage the selling shareholders to roll over a portion of their equity into a minority stake of the new company. This enables business owners to realize partial liquidity, on the one hand, while on the other allowing them to retain ownership and active leadership to capture their future value creation.

Selling to a financial partner also brings the benefit of additional professional and capital resources to accelerate and execute the company's growth strategy, such as expanding internationally or entering new end markets, without absorbing all of the associated risks. The best part of this partnership is the “second bite of the apple” the business owner enjoys when the financial partner initiates a subsequent liquidity event. (This often turns out much better than what befell Adam and Eve.)

In situations where business owners prefer to retain a majority control of the business, a minority sale to a financial partner often provides the best fit. This structure provides business owners sufficient liquidity to take out a dividend, make an acquisition or to buy out another shareholder. It provides additional resources to the business in terms of financial and strategic guidance, yet enables the business owner to maintain full operational control of the company. While the minority partner may have some negative controls, such as the ability to prevent a sale of the business or limit capital expenditure spending, they are not typically actively involved in the ongoing operations of the business.

Just as people look to Cupid to guide them into the arms of a great match, business owners should consider having an experienced investment banker assist them to find the partner that best fulfills their personal and professional objectives. A happy honeymoon will be the result.

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